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Thursday, June 25, 2009

Grocery Bag Lessons in Economic Incentives

In many areas, grocery stores and other big box chain stores recently began charging a nickel for plastic bags. From a rational point of view, this should not have made a big difference. However, once the initial grumbling died down, there was a huge change in customer behaviour.

In our household, this nickel charge would have added a little less than a dollar a week to our grocery bill. But, the drive to save these nickels is compelling to us and seemingly to most other people as well. We bring our own bags, and when we’re forced to pay for a bag or two, we put more items in each bag.

The net result has been a huge decrease in the number of plastic bags given out by stores. And this change happened almost overnight because of a tiny charge for bags.

Economic incentives like this one are often a much better way of driving behaviour than setting rules. Governments serious about driving citizens to greener choices would do well to design effective economic incentives rather than imposing rules.

8 comments:

I've been noodling on a post on this. Initially, I was pissed that Loblaws charges 5 cents for a bag that probably costs them less than 2 cents. But then, I found out that they have a carrot in addition to the stick. They give out 50 PC Points for every bag not used. So, essentially, Loblaws is charging 5 cents for the bags and giving away some of that money to those who don't use them.

It did achieve a reduction in bags. I hardly ever buy a bag from them these days.

CC: My initial reaction was annoyance as well, but we're probably better off now that bag use is way down. I'm not sure how much 50 PC points are worth, but even a tiny incentive can make people feel better about bringing their own bags.

50 PC points are worth a nickel, assuming you eventually get enough to cash them in (you need 20,000 for $20 off).

Like you mention, the government could use this same strategy to help reduce its costs. A $10 fee to see a doctor would deter people from a visit for a trivial matter. Unfortunately, that could deter people who really should see a doctor. It would also be political suicide to implement such a fee.

Gene: You're right that some economic incentives can have negative consequences and some would be political suicide. On the subject of fees to see a doctor, I routinely pay such a fee indirectly. Hospitals in my area charge about $12 to park for more than a couple of hours. This is a fee that can be avoided, but saving $12 is not what I usually have on my mind when going to a hospital.

Once I had two mortgages with PC and I had over 2,000,000 points. It was very funny at first because the cashier would always read the wrong number... missing some zeros. Then they would take a second look and their eyes would go wide. I hardly paid for groceries for over 6 months.

I was not annoyed when they did this. I had been waiting for them to wise up and do this for years, but it was only recently that businesses have been galvanized to actually do something about all the needless waste. I'm glad they finally did it.I didn't know about the PC Points, though, that's just icing on the cake. ^_^ Maybe I should actually remember to use my PC Card...

What initiated this change? Any link would be appreciated. I've received several different answers from cashiers about it, some insinuated it was government mandated.

I have to say I don't really understand how this change makes much sense especially when it's marketed on environmental grounds. I reuse all my grocery bags for garbage disposal or to store recyclables before dropping them in my outside recycling container. Should I now use fabric bags to transport my groceries and buy plastic bags off the shelf to use for these 2 purposes? Doesn't make a whole lot of sense to me. I can see how it might make some sense for a large family where there is a consistent surplus of bags received vs used every week but even then it seems like a rather thin argument.